Indian regulators have long viewed “crypto” as a dirty word. The Reserve Bank of India has warned repeatedly that cryptocurrencies threaten macroeconomic stability and monetary sovereignty. In 2022, the government slapped a 30 per cent tax on crypto gains and a 1 per cent TDS on every trade — measures so punitive they drove 90 per cent of Indian crypto volumes offshore within a year.
Yet, Indian users remain interested. Major domestic exchanges still count tens of millions of users. This paradox — official hostility vs. public curiosity — reveals a policy vacuum. India hasn’t banned crypto, nor did we regulate it meaningfully. Instead, we resorted to ambiguity and tax deterrence, driven by fears that private digital currencies could destabilise the rupee, invite illicit flows and undermine financial order.
But crypto today is not just about volatile coins or meme coins. What’s unfolding globally is a quiet revolution in financial infrastructure — and India risks missing it.
Until recently, Wall Street largely dismissed crypto as a playground for retail speculation — dominated by meme coins, NFTs and pump-and-dump cycles that reinforced its reputation as financial frivolity. But that perception is beginning to shift.
Two developments — stablecoins and tokenisation — are gaining legitimacy in mainstream finance. In July this year, the US passed the GENIUS Act, offering regulatory clarity to dollar-backed stablecoins. Wall Street incumbents are now racing to launch tokenised versions of money market funds, stocks and even deposits.
Stablecoins — digital tokens fully backed by fiat currency — now account for over $250 billion in circulation. They offer near-instant settlement, sidestepping legacy systems like SWIFT or Visa. For cross-border remittances, this is transformative: faster, cheaper and available 24/7. It’s no surprise that major retailers, including Amazon, are exploring stablecoins as a potential alternative to traditional card networks.
On a parallel track, tokenised assets — blockchain-based representations of stocks, bonds or funds — promise around-the-clock trading, even for typically illiquid or private assets. While I remain sceptical of their value for mainstream equities (given that traditional exchanges themselves are moving towards 24/7 models, with the usual liquidity concerns), some institutional adoption is noteworthy. BlackRock’s tokenised money-market fund has surpassed $2 billion and Robinhood now offers tokenised US stocks to European investors, expanding both access and trading hours.
What ETFs did for diversification, tokens could do for access. This isn’t hype. It’s plumbing.
India, one of the world’s top remittance recipients, could save billions by enabling crypto rails for cross-border flows. A well-designed rupee stablecoin could strengthen the rupee’s role in digital payments. Tokenised assets could expand retail access to infrastructure projects, municipal bonds or start-up equity. But current policies are proving self-defeating. The imposition of a 1 per cent TDS on every crypto transaction has severely damaged liquidity on domestic platforms, forcing serious traders and investors to shift to foreign exchanges. This has not only drained trading volume from India’s regulated ecosystem but also weakened enforcement visibility and tax compliance.
More broadly, India’s tax treatment of crypto reflects a punitive mindset. By grouping it with gambling and lottery winnings, with no provision for loss offsets, the regime effectively treats all crypto activity as speculative vice rather than legitimate financial innovation.
Meanwhile, India has yet to permit or regulate any stablecoin for domestic use, even as global markets push ahead. Jurisdictions like the US, Singapore and the EU are crafting frameworks to safely integrate stablecoins into payments and capital markets. In contrast, India remains in a holding pattern — neither banning nor enabling stablecoins.
The RBI sees stablecoins as a threat to monetary sovereignty and worries about “dollarisation” of the economy if USD-backed coins become widespread. These concerns are valid. But freezing innovation is not the solution.
India must move from blanket suspicion to calibrated regulation.
Crypto’s disruptive potential cuts both ways. Stablecoins could displace bank deposits, raising banks’ cost of funds. Tokenised assets might blur lines between private and public markets, weakening disclosure norms. Bad actors could exploit gaps to issue securities disguised as tokens. Exchanges could fail without custody safeguards, as seen globally.
Money laundering and illicit finance are genuine threats. Crypto is pseudonymous, global and fast — traits that aid evasion. The RBI and SEBI are rightly concerned about investor protection, systemic spillovers and loss of policy control.
But these are not arguments for prohibition. They’re arguments for building capacity, coordination and oversight.
India doesn’t need to love crypto. But we must learn to live with — and shape — it. Here’s a possible pathway:
Classify and regulate differently: All tokens are not the same. rupee-backed stablecoins can be overseen by RBI. Tokenised securities can fall under SEBI. A differentiated, use-case based approach is more realistic than a one-size-fits-all ban.
Sandbox innovation: Regulators should pilot controlled experiments, for example, sandboxing stablecoin-based remittances or tokenised municipal bonds. Such models will yield data which could help us get over dogma.
Licensed exchanges and custodians: Set clear standards for crypto businesses to operate safely — capital buffers, audits, disclosures, investor protection norms. This will reduce fraud and build trust.
Tax rationalisation: Scrap the 1 per cent TDS. Align crypto taxation with equities or commodities. Incentivise compliant behaviour instead of forcing users offshore.
Leverage global norms: Adopt global best practices like the FATF Travel Rule and FSB’s stablecoin standards. India doesn’t need to reinvent the wheel — it just needs to steer in sync.
Build a domestic alternative: Instead of worrying about dollar-pegged coins, India can launch a credible rupee stablecoin via regulated entities — or accelerate its digital rupee’s interoperability with global CBDCs for cross-border use.
The future of finance is being tokenised. That doesn’t mean India must follow blindly. But nor can we stand still. Just as we built UPI to democratise digital payments, we can build a regulatory framework that brings crypto under the rule of law — without stifling its potential.
Crypto can be dangerous in the wild — but powerful in the right cage. India has the talent, infrastructure and scale to shape the next financial architecture. But only if we move beyond fear. The question isn’t whether crypto should exist. It’s whether India wants a seat at the table when the future of money is being written.
The writer is Founding Partner, SPRV Consultants
